Sustainable Growth, Political Risk and Carbon Footprint: Do Energy Transition and Financial Expansion Matter?

Abstract

Unclean energy consumption stimulates carbon footprint (CF) leading to increased environmental pollution. Renewable energy transition (ETN) can curb the CF; however, political risk can obstruct this process. Hence, this study analyses the connections between economic growth, ETN and CF by considering political risk and financial expansion in a panel of top 10 emitters from 1992 to 2020 using the method of moment quantile regressions (MM-QR). The results elucidate that ETN significantly reduces the CF in the top emitters. Thus, expanding the ETN is beneficial for reducing the CF and promoting sustainable development. Improving the political environment by reducing the political risk (POLR) helps curb the CF. The inverted U-shaped connection between CF and economic growth shows that increased growth can reduce CF if top emitters can continue to promote energy transition and political stability. The positive impact of financial expansion on CF becomes insignificant at higher quantiles. Finally, policy suggestions are discussed.